Greenlight Capital Re, Ltd. — 2020 Form 10-K
Business and reporting period: Global specialty property and casualty reinsurer operating primarily through Greenlight Re in the Cayman Islands and GRIL in Ireland. The fiscal year ended December 31, 2020; this is an annual, not quarterly, filing. The company combines reinsurance underwriting with a value-oriented long/short investment strategy managed through related-party fund Solasglas Investments, LP (SILP).
Financial performance and position
Amounts are in U.S. dollars unless noted.
| Metric | 2020 | 2019 |
|---|---|---|
| Gross premiums written | $479.8 million | $524.0 million |
| Net premiums earned | $455.4 million | $483.6 million |
| Total investment income | $25.5 million | $52.3 million |
| Net income (loss) attributable to GLRE | $3.9 million | ($4.0 million) |
| Underwriting income (loss), non-GAAP | ($1.6 million) | ($33.5 million) |
| Combined ratio | 100.4% | 106.9% |
| Adjusted combined ratio, non-GAAP | 96.0% | 97.1% |
| Fully diluted book value per share | $13.42 | $12.88 |
- Gross premiums written fell 8.4%, while net premiums written edged up to $477.5 million from $475.3 million, reflecting much lower ceded premiums.
- The combined ratio improved by 6.5 percentage points. Current-year loss ratio was 73.1%; prior-year development added 1.0 point, catastrophe losses 2.0 points, and COVID-19 1.6 points to the 2020 combined ratio. Adjusted combined ratio excludes prior-year development, catastrophes and COVID-19.
- Investment income declined despite a positive year: SILP contributed $4.4 million versus $46.1 million in 2019, and its net portfolio return was 1.4% versus 9.3%. Other investment income included $10.2 million of unrealized gains on Innovations investments and a $5.8 million gain on settlement of a note receivable. A $15.0 million realized note loss was offset by a $15.0 million unrealized allowance reversal.
- Cash from operating activities was negative $91.3 million, versus positive $1.6 million in 2019; investing activities provided $95.6 million, largely from net SILP withdrawals. Cash and cash equivalents were $8.9 million unrestricted and $745.4 million restricted at year-end; the restricted balance primarily supports collateral.
- Total assets were $1.358 billion, total liabilities $892.8 million, and shareholders’ equity $464.9 million. Loss and loss adjustment expense reserves were $494.2 million, including $317.4 million of IBNR.
- Convertible notes have $100 million principal, bear 4.0% interest and mature August 2023; carrying value was $95.8 million. The company reported compliance with note covenants and credit-facility covenants.
Material changes versus 2019
- Underwriting loss narrowed from $33.5 million to $1.6 million, mainly as the prior-year adverse development fell to $4.7 million from $31.3 million. The 2019 deterioration chiefly reflected non-standard auto claims, including Florida adverse rulings.
- Gross written premiums decreased in property and casualty, especially motor business the company chose not to renew. Other premiums rose 57.4%, led by crop, energy, cyber, specialty, health and partnership business. Casualty remained the largest category at 63.0% of gross premiums.
- Catastrophe losses contributed $9.0 million to the 2020 underwriting loss; COVID-19 contributed $7.1 million. Mortgage-related reserves increased amid the pandemic, partly offset by reductions in profit commissions payable.
- Total investment income decreased $26.7 million. The year included a sharp SILP first-quarter loss, followed by gains later in the year.
- Equity declined $12.3 million, partly reflecting $17.8 million spent repurchasing 2.5 million Class A shares; net income and the reduction in shares supported higher book value per share. The letter-of-credit facility limit was reduced from $400 million to $275 million.
Outlook, risks and notable matters
- Management said the 2021 renewal market showed improved rates in most classes, allowing selective specialty-book expansion. It expects the newly established Greenlight Re UK to help access London-market business; no numerical earnings or premium guidance was provided.
- Management described COVID-19 exposure as small relative to many industry participants, but emphasized uncertainty in coverage interpretations, claims emergence, premium volumes, reserves and markets. The company said it expected sufficient operating and investing cash flows for the next 12 months and anticipated some collateral releases during 2021.
- A.M. Best affirmed the subsidiaries’ A- (Excellent) financial strength ratings in July 2020, but the outlook remained negative. A downgrade could constrain new underwriting, trigger contract cancellation or collateral requirements, and affect regulatory support for the strategy.
- Key risks include reserve uncertainty—especially long-tail casualty and pandemic claims—catastrophe exposure, broker concentration, counterparty collectibility, competitive pricing, and the volatility and potential illiquidity of SILP’s concentrated long/short investments. The 2020 audit identified IBNR reserves as a critical audit matter; auditors issued unqualified opinions on the financial statements and internal controls.
- SILP is managed by DME Advisors and DME II, affiliates of board chairman David Einhorn. The company has limited control over investment decisions and disclosed potential conflicts of interest. Management fees are 1.5% annually on the investment portfolio, with performance allocation subject to a loss carryforward. A January 2021 amended partnership agreement retained a 50% investment cap based on partner surplus.
- As of year-end, the company reported compliance with Cayman and Irish regulatory capital requirements. Greenlight Re’s statutory capital and surplus was $491.4 million against a $204.8 million prescribed capital requirement; GRIL’s Solvency II minimum and solvency capital requirements were approximately $6.9 million and $27.8 million.
- The company does not expect to pay dividends in the foreseeable future. It reported no existing contractual disputes expected to have a material adverse effect.
Investor verification checklist
- Review the IBNR reserve assumptions and subsequent development, particularly COVID-19, mortgage, health, multi-line and long-tail casualty claims.
- Reconcile the negative operating cash flow with SILP withdrawals, collateral needs, claims payments and the expected collateral releases; distinguish restricted from available cash.
- Assess whether the 2021 pricing environment and underwriting mix can sustain underwriting profitability, and monitor renewal volumes after the motor-contract non-renewals.
- Examine SILP performance, short-position risk, liquidity, concentration, related-party fees and governance, including the impact of the 50% investment cap.
- Monitor A.M. Best’s negative outlook, statutory capital headroom, broker concentration and the $100 million convertible-note maturity and cash obligations in 2023.
- Assess U.S. shareholder tax exposure, including the company’s PFIC insurance-liability test; the filing says it met the test for 2018–2020 but cannot assure future qualification.